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25 Consider the application on Robert Lucas's study of the international differences in the return to capital. Assume that A, a measure of productivity, is
25 Consider the application on Robert Lucas's study of the international differences in the return to capital. Assume that A, a measure of productivity, is allowed to vary across countries. Use the original specification of marginal product expressed as a function of output per worker, r=KQ=(1)A1/1(LQ)/(1), for the following problems. a. Calculate the ratio of the real return on capital. Assume that A=3 for the United States and A=2 for India. Recall that output per capita in the United States is 15 times larger than that in India and =0.6. b. Assuming that At is allowed to vary, where i=( India,U.S.), determine the general formula for calculating the ratio of the real return on capital by taking the partial derivative r=(AIndia/AU.S.)(rIndia/rU.S.)
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